Corporate value is best defined as the present value of future cash flows. Shareholder value, in turn, is measured by corporate value less present value of debt. How does restructuring create or re-create value for shareholders?
1)Business portfolio restructuring
2)Financial restructuring
3)Organisational restructuring
4)Operational restructuring
1)Business portfolio restructuring
It is imperative for management of a multi-business company to know which business are creating value and which are destroying value. A business is creating / destroying value if the value generated is greater / lesser than the capital invested.
2)Financial restructuring
Financial restructuring is generally aimed at rearranging the financial commitments of the company to match its underlying (restructured) cash flows, so as to achieve the following objectives.
> Preserve going concern and maintain / enhance stakeholder value.
> Ensure stakeholders are financially better off, compared to , say liquidation or "do nothing".
> Equitable return/ recovery to all stakeholders.
> Good chance of realising the enhanced return.
Financial arrangement may entail measures ranging from simple debt rescheduling and security enhancement to debt waiver,debt equity conversion and other creative schemes.There are a number of mechanisms for carrying out a financial restructuring exercise. Which mechanism to adopt depends on the financial distress level of the company and recovery potential to stakeholders.3)Organisational Restructuring
A restructuring exercise will only be successful if the organisation structure is revamped or realingned to support the new corporate and business strategy. New management may need to be installed in order to beef up credibility and core competencies. Management may take this opportunity to rightsize the organisation to cut cost and raise productivity.
4)Operational Restructuring
A short-term profit improvement programme can be implemented to stop cash hemorrhage. Various cost reduction exercise such reduction of significant overhead costs, integration of facilities and shedding of loss-making operations can be carried out. Revenue enhancement can also be implemented through utilisation of excess capacity and optimising product / customer mix and pricing. However, the longer term, a process improvement exercise needs to be undertaken to improve efficiency and productivity, and reduce cost on a permanent basis.
